Global stocks ease after hawkish Fed comments

London/Hong Kong — World stocks eased from the previous session’s record highs while the dollar reached its highest in eight days on Thursday, after hawkish remarks from a senior US Federal Reserve official.

Fed vice-chair Richard Clarida, a major architect of the Fed’s new policy strategy, said on Wednesday he felt the conditions for raising interest rates could be met by the end of 2022, raising expectations that the central bank could scale back its bond-buying programme soon.

“It’s a question not of if the Fed tapers but how fast the Fed tapers,” said Giles Coghlan, chief currency analyst at HYCM, adding he expected tapering of the asset purchase programme to start in August or September.

“Clarida has definitely taken a shift.”

The MSCI world shares index was steady at 729.68, versus a record peak of 731.88 hit in the previous session.

US stock index futures — the S&P 500 e-minis — rose 0.17%. US stocks closed mostly lower on Wednesday after the Fed remarks, with the S&P 500 receding 0.46% from a record high after data signalled a slowdown in jobs growth in July.

European stocks hit record highs, however, and were up 0.21% on strong earnings from Danish company Novo Nordisk and German industrial firm Siemens.

UK stocks were steady and the pound rose 0.18% against the dollar ahead of a Bank of England policy meeting.

Markets are looking for clues on any possible future UK rate rises, particularly as two policymakers have broken ranks to say the time for tighter policy might be nearing.

“The exit strategy, we think, will highlight the Bank’s focus on unwinding its bloated balance sheet more so than on hiking rates,” Deutsche Bank analysts said in a note.

Clarida’s remarks helped US yields and the dollar. The benchmark 10-year yield was last at 1.192%, up from a US close of 1.187%, having touched 1.127% — its lowest level since February — on Wednesday.

The dollar was steady against an index of currencies after hitting an eight-day high of 92.352. It was up 0.1% at 109.57 yen, while the euro gained 0.1% to $1.1848.

German 10-year bond yields fell 1 basis point to -0.504%. Yields dipped below -0.50%, the European Central Bank’s policy rate, for the first time since January on Wednesday.

The MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.29%.

Uncertainty about Chinese policy remains, but the Asian regional benchmark has recovered most of the ground lost a week ago, when a series of Chinese regulatory crackdowns on sectors from property to education squeezed Chinese stocks and overshadowed the region as a whole.

The Chinese blue-chip index was down 0.61%, weighed on primarily by investors dumping online gaming companies, fertiliser producers and e-cigarette makers, fearing that criticism of these industries in state media could portend more government crackdowns.

“In the short term, the further rebound may continue but uncertainties over policy control will drive long-term investors away from Chinese technology names,” said Edison Pun, senior market analyst at Saxo Markets.

The Hong Kong index fell 0.83% and Korea was down 0.3%. But Australian shares hit a record closing high, led by banking stocks. Japan’s Nikkei climbed 0.52%.

Ethereum, the world's second-largest cryptocurrency, dropped 1.75% after gaining 8.7% a day earlier ahead of a technical adjustment to its underlying ethereum blockchain, which should happen later on Thursday.

Reuters